SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
FORM 10-Q
______________________________
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File #333-105778
MORTGAGEBROKERS.COM HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE | 05-0554486 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
260 Edgeley Boulevard, Suite 11, Concord, Ontario L4K 3Y4
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (877) 410-4848
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in rule 12b-2 of the Exchange Act (Check one):
| Large accelerated filer | o | Accelerated filer | o |
| Non-accelerated filer | o | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.
Yes o No x
Indicate the number of shares outstanding of the Registrant’s common stock as of the latest practicable date.
| Class | | Outstanding at May 20, 2008 |
| Common Stock, $.0001 par value | | 38,516,470 |
TABLE OF CONTENTS
| Item 1. | Financial Statements |
| Item 2. | Management’s Discussion and Analysis of Financial Condition |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
| Item 4T. | Control and Procedures |
PART II-- OTHER INFORMATION
| Item 1 | Legal Proceedings |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| Item 3. | Defaults Upon Senior Securities |
| Item 4. | Submission of Matters to a Vote of Security Holders |
| Item 5. | Other Information |
| Item 6. | Exhibits and Reports on Form 8-K |
SIGNATURE
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Basis of Presentation
The accompanying condensed and consolidated statements are presented in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal occurring adjustments) considered necessary in order to make the financial statements not misleading, have been included. Operating results for the three months ended March 31, 2008 are not necessarily indicative of results that may be expected for the year ending December 31, 2008.
The financial statements of the Company appear at the end of this report beginning with the Index to Financial Statements on page F-1 and ending on F-26.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
The following is management’s discussion and analysis of the consolidated financial condition and results of operations of MortgageBrokers.com Holdings, Inc for the periods ending March 31, 2008 and 2007. The following information should be read in conjunction with the reviewed consolidated financial statements for the period ending March 31, 2008 and notes thereto appearing elsewhere in this form 10-Q.
Overview
In operation since 2005, our Company is a mortgage brokerage operation whose national agency sales force service the borrowing and refinancing needs of individual home buyers. We have access to a full range of mortgage lenders and our agents’ source and negotiate the loan with the best rates, terms and features to meet each customer's unique needs. The company acts as broker only and is not a lender. The company has no ‘on balance sheet’ liabilities in case mortgage financing becomes default. The Company has established what it believes to be unique strategic alliances within the real estate industry for mortgage origination referrals.
Our national agency sales force consists of independent contractors operating exclusively under the Company's licensure who may operate regionally as individual businesses or they may establish regional retail offices from which they build agency sales teams leveraging the Company’s business model. The primary services that the Company provides to our national agency sales network are: mortgage brokerage licensure; a national brand and related marketing initiatives; a regulatory compliance service associated with our agent’s transactions; a payroll and commission service reconciling commission fees paid by lenders and insurers and accurate and timely payroll to our agents and their referral sources; revenue optimization for our agents through deal flow aggregation; the establishment of market partnerships to allow our agency sales network to access a greater portion of the mortgage and refinance market; and, information technology services.
Our Company generates revenue by placing mortgages, on behalf of clients, with third party lenders who in return, pay the Company a commission fee. The commission fee is a combination of finder's fees and volume bonus whose aggregate sum fee typically ranges between 75 to 150 basis points (0.75 to 1.5%) of the total mortgage volume. We currently earn additional commission revenue through the referral and placement of creditor insurance with third party insurance providers. In general, when a client takes creditor insurance related to the mortgage transaction originated by the Company, the Company earns a commission which is estimated to be 20 to 30 basis points of the insurance sale.
Generally, in the MortgageBrokers.com model, our licensed agents earn at least 85% of received commission fees. In addition to earned commission fees, our business model also provides our mortgage agents with the potential to earn equity in our Company based on their annual mortgage origination volume. This form of equity participation is intended to provide our national sales agency network a transparent career exit strategy for retirement and a retention strategy for team building purposes. It is our belief that the benefit to the Company is that we are able to build a sustainable long term operational margin contribution from Canadian operations and we are able to include our national agency sales force, responsible for executing the Company's sales strategy, into the ownership of the Company, theoretically allowing them to benefit from Company growth related directly to their contribution.
The Company has also developed strategic alliances with long-established and dominant real estate brands with a view to providing our affiliated agents access, on a volume basis, to mortgage referrals. To this end, the Company has established long-term regional strategic alliances with RE/MAX in eastern Canada and Maxwell in western Canada.
The RE/MAX “Mortgage Solution Program” was launched on June 1, 2006 and, as of November 7, 2007, 76 RE/MAX franchises across Ontario and Atlantic Canada, representing in excess of 30% of the RE/MAX Franchise network sales force, were participating in the referral program. RE/MAX is Canada's leading real estate organization with an estimated CDN $32 billion in sales and over 15,600 sales associates in more than 610 independently-owned and operated offices.
The Maxwell “Mortgage Solution Program” was launched on April 12, 2006. Maxwell is the largest independent real estate company in Alberta, Canada. According to the agreement, our mortgage agents will service the Maxwell network which, since its inception in 1999, has grown to over 20 offices with over 650 successful real estate agents throughout the province of Alberta. In addition to Maxwell's six Calgary offices, franchises have been established in Canmore, Lethbridge, Edmonton, Fort McMurray, Stettler, Airdrie, Medicine Hat, Red Deer and Chestermere Lake, Alberta.
Over the reporting period and to-date, operations were conducted through our subsidiaries in Canada only. The Company is currently providing mortgage brokerage services in the Canadian provincial markets of Newfoundland, Nova Scotia, New Brunswick, Prince Edward Island, Ontario and Alberta.
As at May 14, 2008, we had 370 licensed mortgage agents operating across Canada and our agents had established 25 retail office locations under the Company brand. The number of mortgage agents in our national sales agency at the end of the reporting period represents an 84% increase over that of the same period in 2007. As at March 31, 2008, our Company had 15 full-time staff.
The Company’s corporate offices are at 11-260 Edgeley Boulevard, City of Vaughan, Ontario, CANADA. Our current contact information for our Ontario office is telephone number: (877) 410-4848 and fax number: (877) 410-4845. Our internet website can be found under the domain name: www.mortgagebrokers.com. The Company also has a regional corporate office in Calgary, Alberta, Canada.
Results of Operations
Gross revenue in our first quarter in 2008 increased by 86% from that of 2007 to $2,399,402, which management believes was directly related to increasing the number of sales agency mortgage agents by 84%.
The Company’s operating expenses nominally increased in the first quarter of 2008 by 9% over the same period in 2007. The primary components that comprise our operating expenses and contribute to this trend are agent commissions, salaries and benefits, general and administrative expenses, occupancy costs and stock-based compensation:
· 89% of the operating expenses in the reporting period were associated with agent commissions. Agent commission fees as a percent of revenues decreased by 10% from the first quarter 2007 as compared to that of 2008.
· 16% of the operating expenses in the reporting period were associated with salaries and benefits. Salaries and benefits increased nominally by 13% from the first quarter 2007 as compared to that of 2008.
· General and administrative expenses increased by 27% from the first quarter 2007 as compared to that of 2008.
· Occupancy costs increased 436% from the first quarter 2007 to $39,444 and is primarily related to moving into the Company’s current corporate office space which will meet corporate growth needs for the near future and a nominal rent increase at our regional corporate offices in Calgary.
· Stock-based compensation in the first quarter of 2008 was determined to be a negative charge as a result of the stock price decrease over the recent term. This negative charge had a significant positive effect on reducing the reported total operating expenses and resulted in a positive recorded net income.
The Company recorded a positive Net Income for the first quarter of 2008. While we believe the Company is making progress towards profitability and a positive free cash flow, the positive net income reported during the reporting period was primarily related to negative charges reported by the Company associated with stock-price affected stock based compensation calculations.
Liquidity and Capital Resources
As at March 31, 2008, we had $590,441 in cash; $17,075 of referral fees held in trust (which are awaiting completion of administrative agreements prior to being transferred to a Manulife administered RRSP account owned by RE/MAX sales agents), $102,182 in prepaid expenses, $140,214 in equipment and recognized $3,816 in equipment under capital leases for a total of $853,728 in assets. Comparatively as at March 31, 2007, we had $830,852 in cash and a total of $1,182,151 in total assets.
As at March 31, 2008, we had $599,360 in accounts payable, $281,244 in accrued liabilities related to services received but not invoiced as of March 31, 2008 and employee vacation accrual, $180,539 in loans payable to a related party, $398,347 in employee tax deductions payable, $593,231 in accrued stock-based compensation, $145,929 in bank indebtedness related to an unsecured line of credit, $17,075 in trust liability associated with RE/MAX agent referral commissions payable awaiting transfer to the agent’s Manulife RRSP account, capital lease obligations of $3,878 and $746,110 in accrued expenses associated with a legal judgment for a total of $2,965,713 in liabilities. Comparatively as at December 31, 2007 at the beginning of the reporting period, the Company had $791,419 in accounts payable, $149,601 in accrued liabilities, $170,691 in loans payable to a related party, $ 434,584 in employee tax deductions payable, $44,936 payable in a trust liability associated with RE/MAX agent referral commissions payable awaiting transfer to the agent’s Manulife RRSP account, $4,644 in obligations under capital leases, $989,145 in stock-based compensation accrual and $151,316 in bank indebtedness related to an unsecured line of credit for a total of $3,509,994 in liabilities.
Management makes the following comments regarding the most significant factors affecting Company liquidity and capital resources and their measured trends over the reporting period:
· Cash and cash equivalents decreased by 29% over the reporting period to $590,441. This trend was primarily due to a reduction in working capital reserves as cash-based expenses exceeded revenues.
· Accounts payable decreased 24% over the reporting period to $599,360. The bulk of this payable amount is Work in Progress payable following completion of mortgage agent origination compliance procedures. The decrease represents a reduction of Work in Progress payable during the slowest mortgage season of the year. The company expects that this trend will not continue through 2008 assuming our mortgage agent recruitment program continues the pace in 2008 as experienced in 2007.
· The Company has accrued in 2007 for the liability of a partial summary judgment to a claim to which the Company is a party. The calculated judgment liability is $746,110. While the full amount of the judgment was accrued, it is the expectation of management that only a portion, if any, of the liability will be satisfied by the Company in this multi-party judgment. See discussion below.
· Employee tax deductions payable decreased by 8% over the reporting period to $398,347 as the Company incrementally paid down the payable. Company management has met with the government agency to whom the amount is payable and has established a working agreement whereby it is expected that this amount will be paid in full in 2008. See discussion below.
· Stock-based compensation accruals vary year over year. The accrual is valued based on stock prices at the end of the period, for which the Company has no direct influence, therefore it is difficult to analyze related trends. The Company anticipates that it will continue to negotiate stock-based compensation arrangements to maximize working capital resources.
Unless and until the Company increases its revenue and profitability from operations, we will continue to rely upon the issuance of common stock and additional capital contributions from shareholders and/or loans from shareholders and third-party lenders.
Employee Tax Deductions Payable
The Company is in arrears on the tax withholdings due to Canada Revenue Agency (“CRA”) related to employee salaries. The Company has negotiated an agreement with CRA which, if certain conditions are met, allows the Company to pay down the balance in monthly payments of $10,000 beginning February 28, 2008 with the remaining balance due on September 30, 2008. In the event that the Company secures funding, the balance is to be paid off in full shortly after receipt of the funds. In addition, CRA is in the process of registering a Certificate in the Canadian Federal Court for the amount owing to CRA. The liability currently bears interest at 9% annually.
Judgment in Lawsuit
On October 3, 2007 a partial summary judgment from the Ontario Superior Court ordered MortgageBrokers.com Inc., the Company’s subsidiary, and other parties to pay the sum of CDN$598,636 within 90 days, along with interest in the amount of CDN$136,128 and legal expenses in the amount of CDN$8,907. See Item 4 below. This judgment was appealed, but the judgment was upheld on appeal by the Ontario Court of Appeal on March 31, 2008 with costs for the appeal fixed at CDN $5,000. No decision has yet been made as to allocation of liability for the judgment among the parties, who are currently in settlement negotiations with a view to settling payment of the judgment as well as resolving all other claims outstanding between the parties.
Critical Accounting Policies
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Revenue Recognition
Revenue consists of mortgage brokerage fees and finders fees. The revenue is recognized upon the funding of a customer’s mortgage and when the collection is reasonably assured which occurs when the brokerage fee from the bank has been advanced.
Share-based Payment
The Company adopted the disclosure requirements of SFAS No. 123R, "Share-Based Payment" ("SFAS No. 123R") for stock options and similar equity instruments (collectively, "options") issued to employees. The Company applies the fair value base method of accounting as prescribed by SFAS No. 123R. Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. For stock options, the fair value is determined using an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the underlying stock and the expected dividends on it, and the risk-free interest rate over the expected life of the option. SFAS No. 123R also applies to transactions in which an entity issues its equity instruments to acquire goods or services from non-employees. Those transactions must be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable, as described in note 12.
Going Concern
The Company’s consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the reporting period ended March 31, 2008, the Company incurred a Net Income of $160,229 (Q1 2007 a net loss of - $749,100). Certain conditions noted below raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is contingent upon its ability to secure additional debt or equity financing, continue to grow sales of its services and achieve profitable operations. Management’s plan is to secure additional funds through future debt or equity financings. Such financings may not be available or may not be available on reasonable terms to the Company. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
The Company has devoted substantially all of its efforts to establishing its current business. Management developed its business model, business plans and strategic marketing plans that included: organization of the Company and divisions; identification of the Company’s sales channels and associated supply chain; development of marketing strategic plans and sales execution strategies; preparation of a financial plan, risk and capital structure planning models, and mortgage origination ‘book of business’ models; hiring mortgage sales agents to build its national sales force and continuing to develop our referral relationship; developing cash flow forecasts and an operating budget; identifying markets to raise additional equity capital and debt financing; embarking on research and development activities; performing employment searches and preparing agent contracts; and, recruiting and hiring technicians, management and industry specialists.
The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
Off-Balance Sheet Arrangements
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to certain market risks, including changes in interest rates and currency exchange rates. The Company does not undertake any specific actions to limit those exposures.
ITEM 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
(a) Management’s Quarterly Report on Internal Control Over Financial Reporting.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
In the fourth calendar quarter of 2007 and as of March 31, 2008, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 and based on the criteria for effective internal control described in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our financial disclosure controls and procedures were not effective so as to timely identify, correct and disclose information required to be included in our Securities and Exchange Commission (“SEC”) reports due to the Company’s limited internal resources and lack of ability to have multiple levels of transaction review. Through the use of external consultants and the review process, management believes that the financial statements and other information presented herewith are materially correct.
The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures, or its internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
This quarterly report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this quarterly report.
This report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
(b) Changes in Internal Controls.
There have been no changes in the Company’s internal control over financial reporting during the period ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Peter Doherty, a former employee, commenced an action against both of the Company’s subsidiaries, MortgageBrokers.com Inc. and MortgageBrokers.com Financial Group of Companies Inc on July 31, 2007 in the Ontario Superior Court of Justice for wrongful termination. The statement of claim was for an aggregate payment of CDN $600,000 plus interest and costs. The Company filed a statement of defence on September 5, 2007. A mediation took place in this matter on February 11, 2008, and at that time a settlement was reached between the parties whereby MortgageBrokers.com Inc. would pay $23,500 to Peter Doherty.
On October 27, 2006, Trisan Equitable Corporation (“Trisan”) commenced an action in the Ontario Superior Court in Ontario, Canada against several parties, including the Company, MortgageBrokers.com Inc (“MBI”), our Ontario subsidiary, and Alex Haditaghi, our principal shareholder, sole director and chief executive officer, and several corporate affiliates of Mr. Haditaghi. The statement of claim filed by Trisan asserted a number of claims in the aggregate amount of approximately CDN$1.4 million, arising out of a loan agreement with Trisan dated January 27, 2005 pursuant to which Trisan agreed to loan all of the defendants except the Company (such defendants referred to hereinafter as the “Borrowing Parties”) the sum of CDN$750,000, which funds were to be used by Mr. Haditaghi for the purpose of acquiring the shares of Magna Data, Inc. (the “Magna Data Shares”). Trisan alleged in its statement of claim, among other things, that:
| | (i) | it ultimately loaned upwards of CDN$550,000 pursuant to the loan agreement, |
| | (ii) | the Magna Data Shares were to be pledged as security for repayment of its loan to Haditaghi |
| | (iii) | it was to have been issued, upon certain conditions, upwards of 500,000 shares of the Company’s common stock, and |
| | (iv) | the funds advanced to Mr. Haditaghi and/or MBI were never repaid; |
| | (v) | Trisan obtained security for such repayment of the loan from a number of the Borrowing Parties, but not from MBI. |
In January 2007, the Company and the Borrowing Parties filed a statement of defence, cross-claim and counterclaim in response to Trisan’s statement of claim, in which the defendants alleged breach of the loan agreement by Trisan.
On October 3, 2007 a partial summary judgment from the Ontario Superior Court ordered that the Borrowing Parties pay Trisan the sum of CDN$598,636 within 90 days, along with interest in the amount of CDN$136,128 and legal expenses in the amount of CDN$8,907. The court further ordered the dismissal of the counterclaim filed by the Company and the Borrowing Parties and ordered that the balance of Trisan’s claims contained in its statement of claim should proceed to trial. The Court further ordered that 500,000 unrestricted shares of the Company be deposited by the defendants with an escrow agent upon payment of the above ordered amounts, pending final disposition of Trisan’s other claims and that costs of the motion for summary judgment be fixed at CDN$5,000 payable to Trisan within 90 days. Upon payment of the judgment amount, the security provided for the loan would be released.
The October 3, 2007 partial summary judgment was appealed by the Company and the Borrowing Parties, but the judgment was upheld on appeal by the Ontario Court of Appeal on March 31, 2008 with costs for the appeal fixed at $CDN5,000.
No decision has yet been made as to allocation of liability for the judgment among the Borrowing Parties.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the reporting period, the following non monetary transactions were completed by the Company on a service for stock basis. It is the Company’s accounting policy that in certain circumstances, stock, generally valued at the 5 day moving average price of the trading value of the stock at the time the associated agreement was executed, might be issued for the procurement of assets, provision of advisory and other services.
On February 5, 2008, the Company issued 50,000 restricted common shares at a price of $0.191 per share for total amount of $9,550 to vFinance, Inc. based on the execution of an investment banking service agreement. vFinance, Inc. is an arm’s length third party consultant. vFinance Inc. provided advisory services with respect to the review of financing term sheets and investment banking matters.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4: SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of the CEO and CFO Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports of Form 8-K
On January 29, 2008, the Company filed a Form 8K disclosing the resignation of its auditor.
On February 7, 2008, the Company filed an amended Form 8K regarding the resignation of its auditor.
On February 12, 2008, the Company filed a Form 8K disclosing the appointment of a new independent auditor.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
| MORTGAGEBROKERS.COM HOLDINGS, INC. |
By: /s/ Alex Haditaghi |
| Alex Haditaghi |
| Principal Executive Officer, |
| Principal Accounting Officer, |
| President, Secretary and Director |
Dated: May 20, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| NAME | | TITLE | DATE |
| | | | |
| /s/ Alex Haditaghi | | President, Secretary and Director | May 20, 2008 |
| Alex Haditaghi | | | |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY MAGNADATA, INC.) CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2008 AND 2007 |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2008 AND 2007
CONTENTS
| | |
| | |
| | |
| | |
| Consolidated Balance Sheets | F3 |
| | |
| Consolidated Statements of Operations and Comprehensive Income (loss) | F4 |
| | |
| Consolidated Statements of Cash Flows | F5 |
| | |
| Notes to Consolidated Financial Statements | F6 - F24 |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Consolidated Balance Sheets
March 31, 2008 and December 31, 2007
| | | March 31, | | | December 31, | |
| | | 2008 | | | 2007 | |
| ASSETS | | | | | | |
| Current Assets | | | | | | |
| Cash and cash equivalents | | $ | 590,441 | | | $ | 830,852 | |
| Referral fees held in trust (note 3) | | | 17,075 | | | | 44,936 | |
| Prepaid expenses | | | 102,182 | | | | 148,611 | |
| | | | | | | | | |
| Total Current Assets | | | 709,698 | | | | 1,024,399 | |
Equipment, net (note 4) | | | 140,214 | | | | 153,474 | |
Equipment Under Capital Leases (note 5) | | | 3,816 | | | | 4,278 | |
| | | | | | | | | |
| Total Assets | | $ | 853,728 | | | $ | 1,182,151 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Bank indebtedness (note 6) | | $ | 145,929 | | | $ | 151,316 | |
| Accounts payable | | | 599,360 | | | | 791,419 | |
| Accrued liabilities | | | 281,244 | | | | 149,601 | |
| Employee tax deductions payable (note 7) | | | 398,347 | | | | 434,584 | |
| Accrued legal judgment (note 8) | | | 746,110 | | | | 773,658 | |
| Advances from related party (note 9) | | | 180,539 | | | | 170,691 | |
| Trust liability (note 3) | | | 17,075 | | | | 44,936 | |
| Obligation under capital leases - current portion (note 10) | | | 1,836 | | | | 2,602 | |
| Stock-based compensation accrual - current portion (note 11a) | | | 70,837 | | | | 102,066 | |
| Employee stock-based compensation accrual (note 11b) | | | 388,798 | | | | 657,260 | |
| Stock-based compensation accrual – current portion (note 11c) | | | 61,781 | | | | - | |
| | | | | | | | | |
| Total Current Liabilities | | | 2,891,856 | | | | 3,278,133 | |
Obligation Under Capital Leases (note 10) | | | 2,042 | | | | 2,042 | |
Stock-based Compensation Accrual (note 11c) | | | 71,815 | | | | 229,819 | |
| | | | | | | | | |
| Total Liabilities | | | 2,965,713 | | | | 3,509,994 | |
| | | | | | | | | |
Commitments and Contingencies (note 18) | | | | | | | | |
| STOCKHOLDERS' DEFICIT | | | | | | | | |
| Capital Stock | | | | | | | | |
Preferred stock, $0.0001 par value; 5,000,000 shares authorized, none issued | | | - | | | | - | |
Capital stock, $0.0001 par value; 100,000,000 shares authorized; 38,516,470 (2007: 38,466,470) issued and outstanding (note 12) | | | 3,852 | | | | 3,847 | |
| Additional Paid-in Capital | | | 3,433,809 | | | | 3,424,264 | |
Additional Paid-in Capital - Warrants (note 13) | | | 622,211 | | | | 622,211 | |
| Subscription for Stock | | | 64,086 | | | | 64,086 | |
Subscription Receivable (note 14) | | | (227,540 | ) | | | (227,540 | ) |
Treasury Stock (note 15) | | | (25,234 | ) | | | (25,234 | ) |
Accumulated Other Comprehensive Income (Loss) | | | 13,070 | | | | (33,009 | ) |
| Accumulated Deficit | | | (5,996,239 | ) | | | (6,156,468 | ) |
| | | | | | | | | |
| Total Stockholders' Deficit | | | (2,111,985 | ) | | | (2,327,843 | ) |
| | | | | | | | | |
| Total Liabilities and Stockholders' Deficit | | $ | 853,728 | | | $ | 1,182,151 | |
(The accompanying notes are an integral part of these consolidated financial statements.)
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three Months Ended March 31, 2008 and 2007
| | | 2008 | | | 2007 | |
| | | | | | | |
| Revenue | | | 2,399,402 | | | | 1,290,975 | |
| | | | | | | | | |
| Expenses | | | | | | | | |
| Commission and agent fees | | | 1,986,185 | | | | 1,189,234 | |
| Salaries and benefits | | | 351,256 | | | | 310,117 | |
| General and administrative expenses | | | 242,224 | | | | 190,796 | |
| Employee stock-based compensation (note 11b) | | | (268,462 | ) | | | 182,106 | |
| Stock-based compensation (note 18a, 18b, and 18c(i)) | | | (96,223 | ) | | | 42,507 | |
| Stock-based compensation (note 18c(ii)) | | | (31,229 | ) | | | 105,623 | |
| Stock-based compensation for services (note 12) | | | 372 | | | | 7,500 | |
| Occupancy costs (note 16) | | | 39,444 | | | | 7,353 | |
| Depreciation expense | | | 8,296 | | | | 4,839 | |
| | | | | | | | | |
| Total Operating Expenses | | | 2,231,863 | | | | 2,040,075 | |
| | | | | | | | | |
| Income (Loss) from Operations | | | 167,539 | | | | (749,100 | ) |
| | | | | | | | | |
| Other Expenses | | | | | | | | |
| Interest, Finance and Other Expenses | | | (7,310 | ) | | | - | |
| | | | | | | | | |
| Income (Loss) Before Income Taxes | | | 160,229 | | | | (749,100 | ) |
| | | | | | | | | |
| Provision for income taxes (note 17) | | | - | | | | - | |
| | | | | | | | | �� |
| Net Income (Loss) | | | 160,229 | | | | (749,100 | ) |
| | | | | | | | | |
| Foreign Currency Translation Adjustment | | | 46,079 | | | | 1,139 | |
| | | | | | | | | |
| Total Comprehensive Income (Loss) | | | 206,308 | | | | (747,961 | ) |
| | | | | | | | | |
| Net Income (Loss) per Share - Basic and Diluted During the Period | | | 0.00 | | | | (0.02 | ) |
| | | | | | | | | |
| Weighted Average Number of Shares Outstanding - Basic and Diluted During the Period | | | 38,497,239 | | | | 36,098,248 | |
| | | | | | | | | |
(The accompanying notes are an integral part of these consolidated financial statements.)
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2008 and 2007
| | | 2008 | | | 2007 | |
| Cash Flows from Operating Activities | | | | | | |
| Net income (loss) | | $ | 160,229 | | | $ | (749,100 | ) |
Adjustments to reconcile net Income (loss) to net cash used in operating activities: | | | | | | | | |
| Depreciation | | | 8,296 | | | | 4,839 | |
| Stock issued for services | | | 372 | | | | 7,500 | |
| Employee stock-based compensation | | | (268,462 | ) | | | 182,106 | |
| Stock-based compensation accrual | | | (105,902 | ) | | | 148,130 | |
| (Increase) decrease in net assets: | | | | | | | | |
| Referral fees held in trust | | | 27,861 | | | | (30,492 | ) |
| Prepaid expense | | | 34,057 | | | | 337 | |
| Accounts payable | | | (192,059 | ) | | | (48,357 | ) |
| Accrued liabilities | | | 131,643 | | | | - | |
| Employee tax deduction payable | | | (36,237 | ) | | | - | |
| Accrued legal judgment | | | (27,548 | ) | | | - | |
| Trust liability | | | (27,861 | ) | | | 30,492 | |
| | | | | | | | | |
| Net Cash Used in Operating Activities | | | (295,611 | ) | | | (454,545 | ) |
| | | | | | | | | |
| Cash Flows from Investing Activities | | | | | | | | |
| Disposal of equipment | | | 5,426 | | | | - | |
| | | | | | | | | |
| Net Cash Provided by Investing Activities | | | 5,426 | | | | - | |
| | | | | | | | | |
| Cash Flows from Financing Activities | | | | | | | | |
| Repayments of obligation under capital leases | | | (766 | ) | | | (265 | ) |
| Advances (Repayment) from related party | | | 9,848 | | | | (36,669 | ) |
| Proceeds from issuance of common stock | | | - | | | | 32,301 | |
| Purchase of treasury stock | | | - | | | | (7,455 | ) |
| (Decrease) increase in bank indebtedness | | | (5,387 | ) | | | 5,187 | |
| | | | | | | | | |
| Net Cash Provided by Financing Activities | | | 3,695 | | | | (6,901 | ) |
| | | | | | | | | |
| Net Decrease in Cash and Cash Equivalents | | | (286,490 | ) | | | (461,446 | ) |
| | | | | | | | | |
| Foreign Exchange on Balances | | | 46,079 | | | | (10,599 | ) |
| | | | | | | | | |
| Cash and Cash Equivalents - Beginning of Period | | | 830,852 | | | | 1,238,357 | |
| | | | | | | | | |
| Cash and Cash Equivalents - End of Period | | $ | 590,441 | | | $ | 787,510 | |
| | | | | | | | | |
| Supplemental Cash Flow Information | | | | | | | | |
| Interest paid | | $ | 2,602 | | | $ | 1,577 | |
| | | | | | | | | |
| Income taxes paid | | $ | - | | | $ | - | |
(The accompanying notes are an integral part of these consolidated financial statements.)
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
1. Nature of Business and Going Concern
Nature of Business
MortgageBrokers.com Holdings, Inc., which registered a change of name with the state of Delaware in February 2005 and Subsidiaries (the “Company”) was formerly known as MagnaData, Inc. and organized under the laws of the State of Delaware on February 6, 2003.
Mortgage brokerage operations are presently conducted through the Company’s subsidiaries, Mortgagebrokers.com Inc. (an Ontario, Canada company) and MortgageBrokers.com Financial Group of Companies, Inc. (Canadian federal company), in Canada only. The planned operations of the Company consists of becoming a financial services company centered around mortgage finance, brokerage, sales and consulting in Canada, the United States and the European Union (“E.U.”).
Going Concern
The Company’s consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the period ended March 31, 2008, the Company generated a profit of $160,229 (2007 a loss of - $749,100). Certain conditions noted below raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue as a going concern is contingent upon its ability to secure additional debt or equity financing, continue to grow sales of its services and achieve profitable operations. Management’s plan is to secure additional funds through future debt or equity financings. Such financings may not be available or may not be available on reasonable terms to the Company. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
1. Nature of Business and Going Concern (cont'd)
Going Concern (cont'd)
The Company has devoted substantially all of its efforts to establishing its current business. Management developed its business model, business plans and strategic marketing plans that included: organization of the Company and divisions; identification of the Company’s sales channels and associated supply chain; development of marketing strategic plans and sales execution strategies; preparation of a financial plan, risk and capital structure planning models, and mortgage origination ‘book of business’ models; hiring mortgage sales agents to build its national sales force and continuing to develop our referral relationship; developing cash flow forecasts and an operating budget; identifying markets to raise additional equity capital and debt financing; embarking on research and development activities; performing employment searches and preparing agent contracts; and, recruiting and hiring technicians, management and industry specialists.
The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
2. Summary of Significant Accounting Policies
The accounting policies of the Company are in accordance with accounting principles generally accepted in the United States of America, and their basis of application is consistent. Outlined below are those policies considered particularly significant:
a) Interim Financial Statements
The accompanying interim unaudited financial information has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. The interim financial statements should be read in conjunction with the Company's annual financial statements, notes and accounting policies included in the Company's annual report on form 10 KSB for the year ended December 31, 2007 as filed with the SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, are necessary to present fairly the financial position of the Company as of March 31, 2008 and the related operating results and cash flows for the interim period presented have been made. The results of operations of such interim period are not necessarily indicative of the results of the full year.
b) Basis of Consolidation and Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company, its wholly-owned subsidiaries Mortgagebrokers.com Inc. and Mortgagebrokers.com Financial Group of Companies, Inc. All significant inter-company transactions and balances have been eliminated upon consolidation.
c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on account and short-term investments with remaining maturities at acquisition of three months or less.
d) Equipment, net
Equipment is stated at cost. Depreciation is calculated using the following annual rates and methods based on the estimated useful lives of the assets:
| | Furniture and equipment | 20% declining |
| | Computer equipment | 30% declining |
| | Computer software | 30% declining |
| | Leasehold improvements | 20% straight line |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
2. Summary of Significant Accounting Policies (cont'd)
e) Revenue Recognition
Revenue consists of mortgage brokerage fees and finders fees. The revenue is recognized upon the funding of a customer’s mortgage and when the collection is reasonably assured which occurs when the brokerage fee from the bank has been advanced.
f) Use of Estimates
Preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes to financial statements. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Actual results may ultimately differ from estimates, although management does not believe such changes will materially affect the consolidated financial statements in any individual year.
g) Financial Instruments
In accordance with Statement of Financial Accounting Standards ("SFAS") SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" ("SFAS No. 107"), the estimated fair value of financial instruments has been determined by the Company using available market information and valuation methodologies. Considerable judgment is required in estimating fair value. Accordingly, the estimates may not be indicative of the amounts the Company could realize in a current market exchange. As of March 31, 2008, the carrying value of accounts payable and accrued liabilities, advances from related party, and all other current liabilities and long term debt approximate their fair value. The Company is exposed to interest rate risk on its bank loan as the interest charged on the loan fluctuates with the bank’s prime rate.
In accordance with Statement of Financial Accounting Standards ("SFAS") SFAS No. 157, “Defining Fair Value Measurement” ("SFAS No. 157"), the Company adopted the standard which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
2. Summary of Significant Accounting Policies (cont'd)
h) Impairment of Long-lived Assets
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value of asset less cost to sell. As described in note 1, the long-lived assets have been valued on a going concern basis, however, substantial doubt exists as to the ability of the Company to continue as a going concern. If the Company ceases operations, the asset values may be materially impaired.
i) Share-based Payment
The Company adopted the disclosure requirements of SFAS No. 123R, "Share-Based Payment" ("SFAS No. 123R") for stock options and similar equity instruments (collectively, "options") issued to employees. The Company applies the fair value base method of accounting as prescribed by SFAS No. 123R. Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. For stock options, the fair value is determined using an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the underlying stock and the expected dividends on it, and the risk-free interest rate over the expected life of the option. SFAS No. 123R also applies to transactions in which an entity issues its equity instruments to acquire goods or services from non-employees. Those transactions must be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable, as described in note 12.
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
2. Summary of Significant Accounting Policies (cont'd)
j) Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. Deferred tax assets and liabilities are recorded for differences between the consolidated financial statement and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period.
k) Earnings or Loss Per Share
The Company accounts for earnings per share pursuant to SFAS No. 128, Earnings per Share, which requires disclosure in the financial statements of basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year.
l) Foreign Currency Translation
The Company accounts for foreign currency translation pursuant to SFAS No. 52, “Foreign Currency Translation”. The Company’s functional currency is the Canadian dollar. All assets and liabilities are translated into United States dollars using the exchange rates prevailing at the end of the period. Revenues and expenses are translated using the average exchange rates prevailing throughout the period.
Unrealized foreign exchange amounts resulting from translations at different rates according to their nature are included in accumulated other comprehensive income.
Realized foreign currency transaction gains and losses are recognized in operations.
m) Comprehensive Income or Loss
The Company adopted SFAS No. 130, “Reporting Comprehensive Income.” SFAS No. 130 establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income is presented in the statements of stockholders’ deficit, and consists of net loss and unrealized gains (loss) on available for sale marketable securities; foreign currency translation adjustments and changes in market value of future contracts that qualify as a hedge; and negative equity adjustments recognized in accordance with SFAS No. 87. SFAS No. 130 requires only additional disclosures in the financial statements and does not affect the Company’s financial position or results of operations.
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
2. Summary of Significant Accounting Policies (cont'd)
n) Concentration of Credit Risk
SFAS No. 105, “Disclosure of Information About Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk”, requires disclosure of any significant off-balance sheet risk and credit risk concentration. The Company does not have significant off-balance sheet risk or credit concentration.
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
2. Summary of Significant Accounting Policies (cont'd)
o) Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (R) “Business Combinations” (SFAS 141R). SFAS 141R establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. SFAS 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The guidance will become effective as of the beginning of the Company’s fiscal year beginning after 15 December 2008. Management believes the adoption of this pronouncement will not have a material impact on the Company's consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160 “Non-controlling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective as of the beginning of the Company’s fiscal year beginning after 15 December 2008. Management believes the adoption of this pronouncement will not have a material impact on the Company's consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS 161). This statement is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. SFAS 161 applies to all derivative instruments within the scope of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133) as well as related hedged items, bifurcated derivatives, and non-derivative instruments that are designated and qualify as hedging instruments. Entities with instruments subject to SFAS 161 must provide more robust qualitative disclosures and expanded quantitative disclosures. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. We are currently evaluating the disclosure implications of this statement.
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
3. Referral Fees Held in Trust and Trust Liability
Pursuant to service agreements, a portion of RE/MAX referral fees charged to the Company will be payable to RE/MAX agents and will be paid into a Registered Retirement Savings Plan ("RRSP") account on behalf of the respective agent, administered as the RE/MAX Agent Retirement Plan by Manulife Financial. The aforementioned referral fees to date have been deposited into a temporary in-trust account that has signing officers from both the Company & RE/MAX, until the Manulife Financial administered program is fully established for new entrants to the program. It is expected that these funds will be deposited into the respective agents' RRSP throughout 2008.
4. Equipment, net
| | | | | | Net Book | | Net Book | |
| | | | | | Value | | Value | |
| | | | Accumulated | | March 31, | | December 31, | |
| | Cost | | Depreciation | | 2008 | | 2007 | |
| | | | | | | | | |
| Furniture and equipment | | $ | 172,926 | | | $ | 60,924 | | | $ | 112,002 | | | $ | 122,251 | |
| Computer equipment | | | 23,270 | | | | 11,621 | | | | 11,649 | | | | 13,058 | |
| Leasehold improvements | | | 20,807 | | | | 4,244 | | | | 16,563 | | | | 18,165 | |
| | | | | | | | | | | | | | | | | |
| | | $ | 217,003 | | | $ | 76,789 | | | $ | 140,214 | | | $ | 153,474 | |
| | | | | | | | | | | | | | | | | |
5. Equipment Under Capital Leases
| | | March 31, | | | December 31, | |
| | | 2008 | | | 2007 | |
| Computer equipment | | $ | 7,189 | | | $ | 7,189 | |
| Less: accumulated depreciation | | | (3,373 | ) | | | (2,911 | ) |
| | | | | | | | | |
| | | $ | 3,816 | | | $ | 4,278 | |
The equipment under the capital leases is depreciated on a 30% declining balance.
6. Bank Indebtedness
On November 22, 2005, the Company obtained a line of credit in the amount of $150,000 CDN. The line of credit bears interest at Royal Bank of Canada's prime plus 0.5% per annum, is due on demand and is secured by a general security agreement in all assets except real property. At March 31, 2008 $0 (December 31, 2007 - $0) was available on the line of credit.
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
7. Employee Tax Deductions Payable
The Company is in arrears on the tax withholdings due to Canada Revenue Agency (CRA) related to employee salaries. The Company has negotiated agreement with CRA which, if certain conditions are met, allows the Company to pay down the balance in monthly payments of $10,000 beginning February 28, 2008 with the remaining balance due on September 30, 2008. In the event that the Company secures funding, the balance is to be paid off in full shortly after receipt of the funds. In addition, CRA has registered a Certificate in the Canadian Federal Court for the amount owing to CRA. The liability currently bears interest at 9% annually.
8. Accrued Legal Judgment
On October 27, 2006, Trisan Equitable Corporation (“Trisan”) commenced an action in the Ontario Superior Court in Ontario, Canada against several parties, including the Company, MortgageBrokers.com Inc (“MBI”), our Ontario subsidiary, and Alex Haditaghi, our principal shareholder, sole director and chief executive officer, and several corporate affiliates of Mr. Haditaghi. The statement of claim filed by Trisan asserted a number of claims in the aggregate amount of approximately CDN$1.4 million, arising out of a loan agreement with Trisan dated January 27, 2005 pursuant to which Trisan agreed to loan all of the defendants except the Company (such defendants referred to hereinafter as the “Borrowing Parties”) the sum of CDN$750,000, which funds were to be used by Mr. Haditaghi for the purpose of acquiring the shares of Magna Data, Inc. (the “Magna Data Shares”). Trisan alleged in its statement of claim, among other things, that:
| | (i) | it ultimately loaned upwards of CDN$550,000 pursuant to the loan agreement, |
| | (ii) | the Magna Data Shares were to be pledged as security for repayment of its loan to Haditaghi |
| | (iii) | it was to have been issued, upon certain conditions, upwards of 500,000 shares of the Company’s common stock, and |
| | (iv) | the funds advanced to Mr. Haditaghi and/or MBI were never repaid; and, |
| | (v) | Trisan obtained security for such repayment of the loan from a number of the Borrowing Parties, but not from MBI. |
In January 2007, the Company and the Borrowing Parties filed a statement of defense, crossclaim and counterclaim in response to Trisan’s statement of claim, in which the defendants alleged breach of the loan agreement by Trisan.
On October 3, 2007 a partial summary judgment from the Ontario Superior Court ordered that the Borrowing Parties pay Trisan the sum of CDN$598,636 within 90 days, along with interest in the amount of CDN$136,128 and legal expenses in the amount of CDN$8,907. The court further ordered the dismissal of the counterclaim filed by the Company and the Borrowing Parties and ordered that the balance of Trisan’s claims contained in its statement of claim should proceed to trial. The Court further ordered that 500,000 unrestricted shares of the Company be deposited by the defendants with an escrow agent upon payment of the above ordered amounts, pending final disposition of Trisan’s other claims and that costs of the motion for summary judgment be fixed at CDN$5,000 payable to Trisan within 90 days. Upon Payment of the judgment amount, the security provided for the loan would be released.
The October 3, 2007 partial summary judgment was appealed by the Company and the Borrowing Parties, but the judgment was upheld on appeal by the Ontario Court of Appeal on March 31, 2008 with costs for the appeal fixed at $CDN5,000. Please see note 18 and for further details.
No decision has yet been made as to allocation of liability for the judgment among the Borrowing Parties.
9. Advances from Related Party
As of March 31, 2008, the controlling shareholder and Chief Executive Officer of the Company had advanced $180,539 (December 31, 2007 - $170,691) to fund the working capital of the Company. The advances are non-interest bearing, due on demand and unsecured.
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
10. Obligation Under Capital Leases
The obligation under capital leases bear interest at approximately 30% per annum. Future minimum lease payments under the capital leases expiring December 31, 2009 together with the balance of the obligation under capital leases is as follows:
| | | March 31, | | | December 31, | |
| | | 2008 | | | 2007 | |
| 2008 | | $ | 2,669 | | | | 3,578 | |
| 2009 | | | 2,212 | | | | 2,212 | |
| | | | | | | | | |
| Total minimum lease payments | | | 4,881 | | | | 5,790 | |
| | | | | | | | | |
| Less: amount representing interest at approx. 30% | | | (1,003 | ) | | | (1,146 | ) |
| | | | | | | | | |
| Total obligation under capital leases | | | 3,878 | | | | 4,644 | |
| | | | | | | | | |
| Less: current portion | | | (1,836 | ) | | | (2,602 | ) |
| | | | | | | | | |
| Long-term portion | | $ | 2,042 | | | | 2,042 | |
| | | | | | | | | |
11. Stock-based Compensation Accrual
The Company has accrued expenses for stock-based compensation:
| | a) | As of March 31, 2008, the Company has accrued, as stock-based compensation payable, 472,247 (December 31, 2007 – 340,220) common shares at a price of $0.15 (December 31, 2007 - $0.30) per share for a total of $ 70,837 (December 31, 2007 - $102,066) payable to the parties referred to in note 18c(ii). |
| | b) | As of March 31, 2008, the Company has accrued, as employee stock-based compensation, $388,798 (December 31, 2007 - $657,260) under its Equity Compensation Plan referred to in note 12. |
| | c) | As of March 31, 2008, the Company has accrued, as stock-based compensation, 890,640 common shares at a price of $0.15 per share for a total of $133,596 payable to the parties referred to in note 18a, 18b, and 18c(i). |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
12. Capital Stock
Preferred Stock
The Company has 5,000,000 shares authorized of preferred stock with a par value of $0.0001. The Company has issued none of these shares as of March 31, 2008.
Common Stock
On June 9, 2006, the Company completed an offering in which it issued a total of 2,112,470 shares of its common stock to accredited investors including RE/MAX Ontario-Atlantic Canada Inc., its executives and franchisees, at a price per unit of $1.00 for an aggregate offering price of $2,112,470. Purchasers of these securities receive the following additional rights and privileges:
| | i) | the purchaser received a warrant (1 warrant = 1 share) to further purchase up to the total number shares of common stock purchased through the private placement exercisable at a rate of 20% each year following the anniversary date of the private placement closure. The warrants are exercisable at a price 30% below the 30 day fair market price preceding the date such warrants are exercised. Warrants expire if not exercised within 30 days of such anniversary date; and |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
12. Capital Stock (cont'd)
| | ii) | further, pursuant to the execution of a service level agreement, on the anniversary date of the private placement closure, the Company has agreed to issue a number of shares of common stock equal to 25% of the number of common shares purchased in the private placement for ten consecutive anniversary dates. The receipt of such shares is dependent on the execution and maintenance in good standing of the terms of a service level agreement for each of the ten years. The service level agreement included the provisions of marketing, servicing and promotional services. |
On July 7, 2007, the Company issued 125,000 restricted common shares at a price of $1 per share and having similar rights and obligations pursuant to the terms of the 2006 Private Placement offered to executives and franchisees of RE/MAX Ontario-Atlantic Canada Inc. These shares rights were assigned to the new subscribers by the initial subscribers of the 2006 PPM. These shares were issued in anticipation of the initial participants shares being cancelled.
Equity Compensation Plan
On February 6, 2003 and as amended on February 14, 2003, the Company adopted the 2003 Equity Compensation Plan to attract and retain high quality personnel. The adequacy of this plan is evaluated annually by Company management. As of March 31, 2008, no stock or options had been issued under this plan. The disclosures made in the 2005 Audited Financial Statements (10-KSB - Item 10. Executive Compensation) and the `Amendment to License Agreement between RE/MAX and Mortgagebrokers.com Holding Inc.' dated May 25, 2006 (8-K - Schedule `A' 1. Outstanding Options) documenting the equity compensation of employees has not been implemented as of April 15, 2008. The company is currently in the process of amending the existing employment agreements which are expected to be executed in 2008. Until the new employment contracts have been formally and legally executed, the existing employment contracts of the Company are still in effect.
Service Compensation Plan
On March 1, 2005 the Board of Directors approved the Service Compensation Plan ("the Service Plan"), the purpose of which is to enhance the Company’s stockholder value and maximize the available capital resources of the company through allowing non monetary transactions whereby the issuance of stock is granted for services rendered. This program is expected to support the Company in building a long term sustainable revenue pipeline, a national sales agency and referral program as well as provide incentive to service providers to establish long term relationships with the Company and to encourage stock ownership by such individuals by providing them with a means to acquire a proprietary interest in the Company’s success through stock ownership. Under the Service Plan, service providers, consultants, mortgage agents and strategic alliance partners who provide services to the Company may be granted options or warrants to acquire restricted stock of the Company. The total number of shares reserved for issuance under the Service Plan is 5,000,000, the adequacy of which will be evaluated annually.
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
12. Capital Stock (cont'd)
Non Monetary Transactions
The following non monetary transactions were completed by the Company on a service for stock basis. It is the Company’s accounting policy that in certain circumstances, stock, generally valued at the 5 day moving average price of the trading value of the stock at the time the associated agreement was executed, might be issued for the procurement of assets, provision of advisory and other services.
On February 5, 2008, the Company issued 50,000 common shares at a price of $0.191 per share for total amount of $9,550 to vFinance, Inc. based on the execution of an investment banking service agreement. vFinance, Inc. is an arm’s length third party consultant. vFinance Inc. provided advisory services with respect to the review of financing term sheets and investment banking matters.
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
13. Additional Paid-in Capital - Warrants
On June 9, 2006, accredited investors including RE/MAX Ontario-Atlantic Canada Inc., its executives and franchisees purchased 2,112,470 units of the Company for aggregate proceeds of $2,112,470 as a part of private placement (note 12). Each unit consisted of one common share and one common share purchase warrant. The warrants are exercisable at a price 30% below the 30 day fair market price preceding the date such warrants are exercised. One-fifth of such warrants must be exercised (executed to purchase shares) within 30 days following each successive anniversary date of the private placement closing of the offering. Warrants expire if not exercised within 30 days of such anniversary date. The warrants were relatively valued at $732,605. The fair value of the warrants was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions: expected dividend yield of 0%, expected stock volatility of 64.7%, risk-free interest rate of 4.00% and an expected warrant life of 1 year. The expiry date of the warrants was extended for the first year only, to September 30, 2007. As of March 31, 2008, 223,078 of the warrants were exercised at an average price of $0.29. As of March 31, 2008, 206,416 warrants expired, 223,078 warrants were exercised and 1,682,976 warrants remain outstanding and exercisable.
14. Subscription Receivable
On June 9, 2006, the Company completed an offering in which it issued a total of 2,112,470 shares of its common stock to accredited investors including executives and franchisees of RE/MAX Ontario-Atlantic Canada Inc., at a price per unit of $1.00 for an aggregate offering price of $2,112,470. Payment of $1,870,169 was received during the year ended December 31, 2006 and promissory notes were executed for the balance of $242,301. As of March 31, 2008, $155,000 of the original promissory notes remains outstanding. Due to the lack of fulfilling the terms of the promissory notes, two of the original participants’ shares, for a total of 125,000 shares, are in the process of being cancelled. As of March 31, 2008 two new participants subscribed for 125,000 shares under the private placement and as of March 31, 2008, $60,000 of the new participants’ promissory notes have been paid and $65,000 remains outstanding. In addition, on September 30, 2007, 223,078 warrants issued under the private placement were exercised for a total value of $64,086, see note 13. The stock has not been issued on the exercise of these warrants and is included in subscription for stock in the equity section of the balance sheet. As of March 31, 2008, $7,540 receivable on the exercise of the warrants was outstanding and is included in subscriptions receivable in the equity section of the balance sheet.
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
15. Treasury Stock
During 2007, the Company acquired 12,500 common shares of the Company at an average price of $0.60 per share for a total of $7,455. In 2006, the Company acquired 31,600 common shares of the Company at an average value of $0.56 per common share, for a total of $17,779.
16. Occupancy Costs - Related Party
For the period of September 2006 to March 2007, the Company operated from a property owned by a related party and did not incur any rent expenses during this period.
On August 1, 2007, the Company’s current office space was sold to a related party of the Chief Executive Officer, the Company`s majority shareholder. The Company’s lease agreement obligation was extended from two to five years.
17. Income Taxes
The Company has paid no federal or state income taxes. As of March 31, 2008, the Company had net operating loss carry forwards for federal income tax reporting purposes of $3,828,925 which, if unused, will expire in various years. The tax effect of the operating loss carry forwards and temporary differences at March 31, 2008 and 2007 are as follows:
| | | 2008 | | | 2007 | |
| Deferred Income Tax Assets: | | | | | | |
| Net Operating loss carry forward | | $ | 1,301,835 | | | $ | 876,005 | |
| Net book value and tax value differences | | | (35,434 | ) | | | - | |
| Valuation allowance for deferred income tax assets | | | (1,266,401 | ) | | | (876,005 | ) |
| | | | | | | | | |
| Total deferred tax effect | | $ | - | | | $ | - | |
The following is a reconciliation of the income tax benefit computed using the combined Canadian federal and provincial statutory rate of 34% (2006 - 34%) rate to the provision for income taxes:
| | | 2008 | | | 2007 | |
| Deferred Tax Provision: | | | | | | |
| Expected income tax benefit | | $ | 80,006 | | | $ | 178,326 | |
| Valuation allowance | | | (80,006 | ) | | | (178,326 | ) |
| | | | | | | | | |
| Provision for income taxes | | $ | - | | | $ | - | |
| | | | | | | | | |
| Current Tax Provision: | | | | | | | | |
| Federal and Provincial income tax | | $ | - | | | $ | - | |
| | | | | | | | | |
Due to the losses incurred since inception and expected future operating results, management has determined that the Company does not meet the 'more likely than not' criteria that the deferred tax assets resulting from the tax losses available for carry forward and the differences in tax bases of assets will be realized through the reduction of future income tax payments, accordingly a 100% valuation allowance has been recorded for deferred income tax assets.
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
18. Commitments and Contingencies
Commitments
The Company has entered into agreements with various parties, whereby the Company is committed to issue compensatory warrants and stock as part of the “Service Compensation Plan” to mortgage agents and strategic alliance partners.
The effective date (“Effective Date”), when mentioned below, is the date the independent mortgage agent entered into a Mortgage Agent Agreement with the Company; or, is the date the RE/MAX Ontario-Atlantic Canada Inc. (“RE/MAX”) or Maxwell Realty Inc. (“Maxwell”) Franchisee entered into a Service Level Agreement with the Company and is also the date that the strike price (“Strike Price”) of the warrants is established. The strike price is the greater of $1 per share or the twenty day average closing price following the Effective Date.
Since the conversion ratio of dollar value of warrants into shares is fixed, but the share price fluctuates, the accrual to expense the value of the warrants earned by the mortgage agents and strategic alliance partners will fluctuate with the share price at the end of each period.
The Company has entered into agreements with the following parties:
a) Independent Mortgage Agents/Loan Officers
Pursuant to a 5 year Mortgage Agent Agreement, the Company is committed to issuing warrants, at no cost, for common stock of the Company in two series to mortgage agents licensed with the Company based on their annual mortgage origination sales volume, which are summarized as follows based on current formulae:
Series I Warrants
| | “Average Volume”: | defined as the average best three out of five years in funded mortgage origination volume |
| | Number of Warrants: | $8,257 worth of warrants divided by the Strike Price, per CDN $10 million in Average Volume, adjusted on a pro rata basis, no minimum or maximum thresholds. The warrants are convertible in common shares on a 1:1 basis. |
| | Earnings Period: | Series I warrants are earned in the first 5 years following the Effective Date; |
| | Additional Vestment: | all SERIES I warrants are fully vested on the 5th anniversary of the Effective Date |
| | | |
| | Determination Date: | 5 year anniversary of Effective Date | |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
18. Commitments and Contingencies (cont'd)
Commitments (cont’d)
a) Independent Mortgage Agents/Loan Officers (cont'd)
Series II Warrants
| | “Annual Volume”: | defined as the total mortgage origination volume executed per 12 month period following the Effective Date and subsequent 12 month periods following the anniversary dates of the Effective Date |
| | Number of Warrants: | $1,651 worth of warrants divided by the Strike Price per CDN $10 million in Annual Volume, adjusted on a pro rata basis, no minimum or maximum thresholds. The warrants are convertible in common shares on a 1:1 basis. |
| | Earnings Period: | Series II warrants are earned in the first 5 years following the Effective Date |
| | Additional Vestment: | All SERIES II Warrants fully vest 3 years following the Determination Date |
| | Determination Date: | The Annual Volume is determined on the fifth year anniversary of the Effective Date |
b) Maxwell Realty Inc.
Per a three year renewable agreement dated April 12, 2006 and pursuant to the execution of a service level agreement by the Maxwell Franchisee, the Company is committed to issuing to Maxwell at no cost, warrants for common stock of the Company based on referrals leading to funded mortgage origination volume. The Maxwell Warrant-Based Compensation Program, which issues warrants (“SERIES III Warrants”) that are divided amongst the Maxwell Franchisor, Franchisee and referring Sales Agent.
| | Annual Volume: | defined as the total funded mortgage origination volume from Maxwell lead referral executed per 12 month period following the Effective Date and subsequent 12 month periods following the anniversary dates of the Effective Date |
| | Number of Warrants: | $3,000 worth of warrants divided by the Strike Price per CDN $10 million in Annual Volume, adjusted on a pro rata basis, no minimum or maximum thresholds. The warrants are convertible in common shares on a 1:1 basis. |
| | Earnings Period: | Series III warrants are earned in the first 5 years following the Effective Date | |
| | | | |
| | Additional Vestment: | SERIES III warrants are fully vested on the fifth anniversary of the Effective Date |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
18. Commitments and Contingencies (cont'd)
Commitments (cont’d)
c) RE/MAX
| | i) | Pursuant to a ten year licensing agreement dated January 30, 2006 and amended May 25, 2006, and pursuant to the execution of a one year renewable service level agreement by the RE/MAX Franchisee, the Company is committed to issuing to RE/MAX at no cost, warrants for common stock of the Company based on referrals leading to funded mortgage origination volume. The RE/MAX Warrant-Based Compensation Program issues warrants (“SERIES IV Warrants”) as follows based on current formulae: |
| | Annual Volume: | defined as the total funded mortgage origination volume from RE/MAX lead referral executed per 12 month period following the Effective Date and subsequent 12 month periods following the anniversary dates of the Effective Date |
| | Number of Warrants: | $3,000 worth of warrants divided by the Strike Price per $10 million dollars CDN in Annual Volume, adjusted on a pro rata basis, no minimum or maximum thresholds. The warrants are convertible in common shares on a 1:1 basis. |
| | Earnings Period: | Series IV warrants are earned in the first 3 years following the Effective Date |
| | Additional Vestment: | SERIES IV warrants are fully vested on the 5th anniversary of the Effective Date |
| | ii) | Pursuant to the ten year licensing agreement dated January 30, 2006 and amended May 25, 2006, the Company has committed to issuing, at no cost, an aggregate of 528,118 common shares of the Company on each of the 10 year anniversary dates of the licensing agreement to those RE/MAX executives and franchisees that participated in the company’s private placement which closed on June 9, 2006. |
d) The Company has signed lease agreements for computer and office equipment. Committed future payments are as follows:
| 2008 | | $ | 9,247 | |
| 2009 | | $ | 6,802 | |
| 2010 | | $ | 5,816 | |
| 2011 | | $ | 4,140 | |
| 2012 | | $ | 3,662 | |
e) On February 8, 2007, the Company entered into a lease to rent office space in Calgary, Alberta, Canada for maintaining the Company's western Canada operations. The agreement is effective commencing May 1, 2007 for a five year term.
Future minimum lease payments (excluding utilities, taxes and common area maintenance expenses) are as follows:
| 2008 | | $ | 8,810 | |
| 2009 | | $ | 8,810 | |
| 2010 | | $ | 9,985 | |
| 2011 | | $ | 10,572 | |
| 2012 | | $ | 3,524 | |
| | | | | |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY MAGNADATA, INC.)
Notes to Condensed Consolidated Financial Statements
March 31, 2008
f) On March 27, 2007, the Company entered into a lease to rent office space in Concord, Ontario, Canada for maintaining the Company's Canadian head office. The agreement was effective commencing April 1, 2007 for a two year term.
The Company had the option to renew this lease, for amounts to be determined, for two additional one year terms. The Company also had the option to purchase the office space, by May 31, 2007, for $986,815. The Company did not exercise its option to purchase the office space. On August 1, 2007 the office space was sold (note 16) and the lease commitment period was extended from 2 to 5 years.
Future minimum lease payments (excluding utilities, taxes and common area maintenance expenses) are as follows:
| 2008 | | $ | 105,938 | |
| 2009 | | $ | 105,938 | |
| 2010 | | $ | 105,938 | |
| 2011 | | $ | 105,938 | |
| 2012 | | $ | 61,797 | |
Contingencies
Note 8 describes a series of events which results in a continuing legal matter. Given that the judgment further allows additional matters in the original Statement of Claim to proceed to trial the company may incur additional costs and liabilities. An estimate of the contingent liability to which the Company is party to by way of this continued action cannot reasonably be determined at this time and could be as much as the difference between partial summary judgment and the original claim amount plus interest.
19. Comparative Figures
Certain figures for the period have been reclassified to conform to the current period’s financial statement presentation.
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